Press Release

Inogen Announces Third Quarter 2018 Financial Results

- Q3 2018 Sales Revenue up 42.1% Over the Same Period in 2017 --
Provides Updated 2018 Guidance and Initial 2019 Guidance -

GOLETA, Calif.--(BUSINESS WIRE)--
Inogen,
Inc. (NASDAQ: INGN),
a medical technology company offering innovative respiratory products
for use in the homecare setting, today reported financial results for
the three-month period ended September 30, 2018.

Third Quarter 2018 Highlights

Total revenue of $95.3 million, up 38.0% over the same period in 2017

Sales revenue of $89.7 million, up 42.1% over the same period in
2017

Rental revenue of $5.6 million, down 5.3% from the same period in
2017

GAAP net income of $16.4 million, reflecting a 123.9% increase over
the same period in 2017 and a 17.2% return on revenue

Operating income of $10.4 million, representing 24.8% growth over the
same period in 2017 and a 10.9% return on revenue

Total units sold were 52,400, an increase of 16,400, or 45.6%, over
the same period in 2017

“The third quarter of 2018 was another successful quarter for us as we
generated strong revenue across all three sales channels,” said Chief
Executive Officer, Scott Wilkinson. “We are continuing to execute on our
strategy to hire additional sales representatives and invest in
advertising activities to increase consumer awareness as we believe this
is still our most effective means to drive high revenue growth and
portable oxygen concentrator adoption.”

Third Quarter 2018 Financial Results

Total revenue for the three months ended September 30, 2018 rose 38.0%
to $95.3 million from $69.0 million in the same period in 2017.
Direct-to-consumer sales rose 66.3% over the same period in 2017,
primarily due to increased sales representative headcount and additional
consumer advertising. Domestic business-to-business sales grew 32.0%
over the same period in 2017, primarily driven by continued adoption by
traditional home medical equipment providers and internet resellers.
International business-to-business sales in the third quarter of 2018
increased 23.0% over the comparative period in 2017, primarily due to
continued adoption from the Company’s European partners. Rental revenue
in the third quarter of 2018 was $5.6 million compared to $5.9 million
in the third quarter of 2017, representing a decline of 5.3% from the
same period in the prior year. The decrease in rental revenue was
primarily due to a decline in net rental patients on service of 13.0%
compared to the third quarter of 2017, partially offset by higher
revenue per patient on service. Rental revenue accounted for 5.9% of
total revenue in the third quarter of 2018, down from 8.5% of total
revenue in the third quarter of 2017.

Total gross margin was 51.2% in the third quarter of 2018 versus 48.1%
in the comparative period in 2017. The increase in total gross margin
was primarily due to a favorable mix shift towards direct-to-consumer
sales revenue. Sales gross margin was 52.3% in the third quarter of 2018
versus 50.3% in the third quarter of 2017. The sales gross margin
increase was primarily due a favorable mix shift of direct-to-consumer
sales versus business-to-business sales, and lower average cost of goods
sold per unit. This was partially offset by lower average selling prices
in both business-to-business channels due to increased volumes and lower
direct-to-consumer pricing effective June 1, 2018. Rental gross margin
was 34.3% in the third quarter of 2018 versus 24.3% in the third quarter
of 2017. The increase in rental gross margin was primarily due to
increased rental revenue per patient and lower depreciation expense.

Total operating expense increased to $38.4 million, or 40.3% of revenue,
in the third quarter of 2018 versus $24.8 million, or 36.0% of revenue,
in the third quarter of 2017.

Operating expense included research and development expense of $2.1
million in the third quarter of 2018, which was up from $1.4 million in
the comparative period in 2017, primarily due to increased
personnel-related expenses. Sales and marketing expense increased to
$26.3 million in the third quarter of 2018 versus $13.1 million in the
comparative period in 2017, primarily due increased personnel-related
expenses as the Company continued to hire inside sales representatives
at its Cleveland facility and increased advertising expenditures.
General and administrative expense decreased to $10.0 million in the
third quarter of 2018 versus $10.4 million in the comparative period in
2017, primarily due to a reduction in patent defense costs and bad debt
expense, which was partially offset by increased personnel-related
expenses.

The Company reported an income tax benefit of $5.1 million in the third
quarter of 2018, compared to an income tax expense of $1.5 million
reported in the third quarter of 2017. The Company’s income tax benefit
in the third quarter of 2018 included an $8.1 million decrease in
provision for income taxes related to excess tax benefits recognized
from stock-based compensation compared to $1.7 million in the third
quarter of 2017. Excluding the stock-based compensation benefit, the
Company’s non-GAAP effective tax rate in the third quarter of 2018 was
26.4% versus 36.5% in the third quarter of 2017, primarily due to the
impact of the U.S. federal tax reform. A reconciliation of GAAP and
non-GAAP measures is included in the accompanying tables attached hereto.

In the third quarter of 2018, the Company reported net income of $16.4
million, compared to net income of $7.3 million in the third quarter of
2017. Earnings per diluted common share was $0.73 in the third quarter
of 2018 versus $0.33 in the third quarter of 2017, an increase of 121.2%.

Adjusted EBITDA for the three months ended September 30, 2018 rose 16.2%
to $16.3 million, or 17.1% of revenue, from $14.1 million, or 20.4% of
revenue, in the third quarter of 2017. The reduction in third quarter
2018 Adjusted EBITDA margin compared to the third quarter of 2017 was
primarily due to investments in sales infrastructure and related
advertising, lower rental depreciation expense, and a continued shift in
revenue mix towards sales revenue.

Cash, cash equivalents and marketable securities were $223.9 million as
of September 30, 2018 compared to $208.4 million as of June 30, 2018, an
increase of $15.4 million in the third quarter of 2018.

Financial Outlook for 2018

Inogen is increasing its full year 2018 total revenue guidance range to
$345 to $355 million, up from $340 to $350 million, representing growth
of 38.3% to 42.3% versus 2017 full year results. The Company still
expects direct-to-consumer sales to be its fastest growing channel,
domestic business-to-business sales to have a significant growth rate,
and international business-to-business sales to have a solid growth
rate. The Company also still expects rental revenue to be down
approximately 10% in 2018 compared to 2017 due to a continued focus on
sales versus rentals.

Further, the Company is narrowing its full year 2018 GAAP net income and
non-GAAP net income guidance range to $46 to $48 million, from $45 to
$48 million, representing growth of 119.0% to 128.5% compared to 2017
GAAP net income of $21.0 million and growth of 61.0% to 67.9% compared
to 2017 non-GAAP net income of $28.6 million. The Company estimates that
the decrease in provision for income taxes related to excess tax
benefits recognized from stock-based compensation will lead to a
reduction in provision for income taxes of approximately $18 million in
2018, up from $12 million, based on forecasted stock activity, which
would lower its effective tax rate as compared to the U.S. statutory
rate. The Company expects its effective tax rate including stock-based
compensation deductions to vary quarter-to-quarter depending on the
amount of pre-tax net income, share price, and on the timing and size of
stock option exercises. Excluding the estimated $18 million decrease in
provision for income taxes expected in 2018, the Company now expects a
non-GAAP effective tax rate of 24% compared to the previous expectation
of 25%.

Inogen is reducing its guidance range for full year 2018 Adjusted EBITDA
to $60 to $62 million, down from $65 to $69 million, representing growth
of 18.0% to 22.0% versus 2017 full year results due to continued sales
and marketing investments expected in the fourth quarter of 2018.

As the business continues to shift toward sales revenue versus rental
revenue, and depreciation expense decreases as a percent of total
revenue, the Company believes operating income is more relevant when
analyzing profitability trends of the business. Thus, Inogen will plan
to also give guidance on operating income and expects full year 2018
operating income to be $35 to $37 million, representing growth of 26.9%
to 34.1% versus 2017 full year results.

Financial Outlook for 2019

The Company is also providing a full year 2019 guidance range for total
revenue of $430 to $440 million, representing 22.9% to 25.7% growth over
the 2018 guidance mid-point of $350 million. The Company expects
direct-to-consumer sales to be its fastest growing channel and expects
domestic business-to-business sales and international
business-to-business sales to have a solid growth rate. Lastly, rental
revenue is expected to grow modestly in 2019 compared to 2018.

The Company forecasts full year 2019 GAAP net income to be in the range
of $48 to $52 million, representing growth of 2.1% to 10.6% over the
2018 guidance mid-point of $47 million. This growth rate is impacted by
a predicted decline in tax benefits in 2019. Inogen estimates that the
decrease in provision for income taxes related to excess tax benefits
recognized from stock-based compensation will lead to a reduction in
provision for income taxes of approximately $12 million in 2019 compared
to $18 million expected in 2018 based on forecasted stock activity,
which would further lower the Company’s effective tax rate as compared
to the U.S. statutory rate. When excluding the benefit from the
estimated $12 million decrease in provision for income taxes expected in
2019 from stock-based compensation deductions, the Company expects a
non-GAAP effective tax rate of approximately 24% in 2019 compared to 24%
expected in 2018.

The Company is also providing a guidance range for full year 2019
Adjusted EBITDA of $67 to $71 million, representing 9.8% to 16.4% growth
over the 2018 guidance mid-point of $61 million. Inogen expects full
year 2019 operating income to be $46 to $50 million, representing 27.8%
to 38.9% growth over the 2018 guidance mid-point of $36 million,
primarily due to continued sales and marketing investments expected in
2019.

The Company still expects net positive cash flow for 2018 and 2019 with
no additional capital required to meet its current operating plan.

Conference Call

Individuals interested in listening to the conference call today at
1:30pm PT/4:30pm ET may do so by dialing (855) 238-8123 for domestic
callers or (412) 317-5217 for international callers. Please reference
Inogen (INGN) to join the call. To listen to a live webcast, please
visit the Investor Relations section of Inogen's website at: http://investor.inogen.com/.

A replay of the call will be available beginning November 6, 2018 at
3:30pm PT/6:30pm ET through 3:30pm PT/6:30pm ET on November 13, 2018. To
access the replay, dial (877) 344-7529 or (412) 317-0088 and reference
Access Code: 10125445. The webcast will also be available on Inogen's
website for one year following the completion of the call.

Inogen has used, and intends to continue to use, its Investor Relations
website, http://investor.inogen.com/,
as a means of disclosing material non-public information and for
complying with its disclosure obligations under Regulation FD. For more
information, visit http://investor.inogen.com/.

About Inogen

Inogen is innovation in oxygen therapy. We are a medical technology
company that develops, manufactures and markets innovative oxygen
concentrators used to deliver supplemental long-term oxygen therapy to
patients suffering from chronic respiratory conditions.

This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including, among others, statements regarding anticipated growth
opportunities; hiring and marketing expectations; expectations for all
revenue channels for full year 2018 and full year 2019; and financial
guidance for 2018 and 2019, including revenue, GAAP net income, Adjusted
EBITDA, non-GAAP net income, net cash flow, effective tax rates,
operating income and the need for additional capital. Forward-looking
statements are subject to numerous risks and uncertainties that could
cause actual results to differ materially from currently anticipated
results, including but not limited to, risks arising from the
possibility that Inogen will not realize anticipated revenue; the
possible loss of key employees, customers, or suppliers; and
intellectual property risks if Inogen is unable to secure and maintain
patent or other intellectual property protection for the intellectual
property used in its products. In addition, Inogen's business is subject
to numerous additional risks and uncertainties, including, among others,
risks relating to market acceptance of its products; competition; its
sales, marketing and distribution capabilities; its planned sales,
marketing, and research and development activities; interruptions or
delays in the supply of components or materials for, or manufacturing
of, its products; risks related to the recent data security incident,
remediation measures, and potential claims; seasonal variations;
unanticipated increases in costs or expenses; and risks associated with
international operations. Information on these and additional risks,
uncertainties, and other information affecting Inogen’s business
operating results are contained in its Annual Report on Form 10-K for
the year ended December 31, 2017 and in its other filings with the
Securities and Exchange Commission. Additional information will also be
set forth in Inogen’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2018 to be filed with the Securities and Exchange
Commission. These forward-looking statements speak only as of the date
hereof. Inogen disclaims any obligation to update these forward-looking
statements except as may be required by law.

Use of Non-GAAP Financial Measures

Inogen has presented certain financial information in accordance with
U.S. GAAP and also on a non-GAAP basis for the three and nine months
ended September 30, 2018 and September 30, 2017. Management believes
that non-GAAP financial measures, taken in conjunction with U.S. GAAP
financial measures, provide useful information for both management and
investors by excluding certain non-cash and other expenses that are not
indicative of Inogen's core operating results. Management uses non-GAAP
measures to compare Inogen's performance relative to forecasts and
strategic plans, to benchmark Inogen's performance externally against
competitors, and for certain compensation decisions. Non-GAAP
information is not prepared under a comprehensive set of accounting
rules and should only be used to supplement an understanding of Inogen's
operating results as reported under U.S. GAAP. Inogen encourages
investors to carefully consider its results under U.S. GAAP, as well as
its supplemental non-GAAP information and the reconciliation between
these presentations, to more fully understand its business.
Reconciliations between U.S. GAAP and non-GAAP results are presented in
the accompanying table of this release. For future periods, Inogen is
unable to provide a reconciliation of non-GAAP measures without
unreasonable effort as a result of the uncertainty regarding, and the
potential variability of, the amounts of interest income, interest
expense, depreciation and amortization, stock-based compensation,
provision (benefit) for income taxes, and certain other infrequently
occurring items, such as acquisition related costs, that may be incurred
in the future.

Consolidated Balance Sheets

(amounts in thousands)

September 30,

December 31,

2018

2017

(unaudited)

Assets

Current assets

Cash and cash equivalents

$

176,282

$

142,953

Marketable securities

47,574

30,991

Accounts receivable, net

34,250

31,444

Inventories, net

30,621

18,842

Deferred cost of revenue

401

361

Income tax receivable

2,356

1,313

Prepaid expenses and other current assets

8,066

2,584

Total current assets

299,550

228,488

Property and equipment, net

23,015

20,103

Goodwill

2,288

2,363

Intangible assets, net

4,103

4,717

Deferred tax asset - noncurrent

26,282

18,636

Other assets

1,874

765

Total assets

$

357,112

$

275,072

Liabilities and stockholders' equity

Current liabilities

Accounts payable and accrued expenses

$

26,769

$

20,626

Accrued payroll

11,904

6,877

Warranty reserve - current

3,539

2,505

Deferred revenue - current

3,549

3,533

Income tax payable

369

345

Total current liabilities

46,130

33,886

Warranty reserve - noncurrent

5,703

3,666

Deferred revenue - noncurrent

12,781

9,402

Deferred tax liability - noncurrent

338

348

Other noncurrent liabilities

896

729

Total liabilities

65,848

48,031

Stockholders' equity

Common stock

21

21

Additional paid-in capital

240,101

218,109

Retained earnings

50,439

8,639

Accumulated other comprehensive income

703

272

Total stockholders' equity

291,264

227,041

Total liabilities and stockholders' equity

$

357,112

$

275,072

Consolidated Statements of Comprehensive Income

(unaudited)

(amounts in thousands, except share and per share amounts)

Three months ended

Nine months ended

September 30,

September 30,

2018

2017

2018

2017

Revenue

Sales revenue

$

89,712

$

63,137

$

255,283

$

167,141

Rental revenue

5,579

5,893

16,297

18,510

Total revenue

95,291

69,030

271,580

185,651

Cost of revenue

Cost of sales revenue

42,810

31,401

124,726

81,307

Cost of rental revenue, including depreciation of $1,689 and $2,366

for the three months ended and $5,820 and $7,577 for the nine

months ended, respectively

3,668

4,459

11,844

13,863

Total cost of revenue

46,478

35,860

136,570

95,170

Gross profit

48,813

33,170

135,010

90,481

Operating expense

Research and development

2,096

1,375

5,287

3,944

Sales and marketing

26,339

13,095

67,376

35,569

General and administrative

9,982

10,368

29,230

28,568

Total operating expense

38,417

24,838

101,893

68,081

Income from operations

10,396

8,332

33,117

22,400

Other income (expense)

Interest income

895

221

2,111

468

Other income (expense)

8

264

(596

)

994

Total other income, net

903

485

1,515

1,462

Income before provision (benefit) for income taxes

11,299

8,817

34,632

23,862

Provision (benefit) for income taxes

(5,133

)

1,479

(7,168

)

2,254

Net income

$

16,432

$

7,338

$

41,800

$

21,608

Other comprehensive income (loss), net of tax

Change in foreign currency translation adjustment

(47

)

115

137

312

Change in net unrealized gains (losses) on foreign currency hedging

102

(196

)

577

(442

)

Less: reclassification adjustment for net (gains) losses included in
net income

(1) Reconciliations of net income attributable to common
stockholders basic and diluted can be found in Inogen’s Quarterly Report
on Form 10-Q to be filed with the Securities and Exchange Commission.

Supplemental Financial Information

(unaudited)

(amounts in thousands, except units and patients)

Three months ended

Nine months ended

September 30,

September 30,

2018

2017

2018

2017

Revenue by region and category

Business-to-business domestic sales

$

30,263

$

22,919

$

91,222

$

61,534

Business-to-business international sales

21,142

17,186

58,807

43,528

Direct-to-consumer domestic sales

38,307

23,032

105,254

62,079

Direct-to-consumer domestic rentals

5,579

5,893

16,297

18,510

Total revenue

$

95,291

$

69,030

$

271,580

$

185,651

Additional financial measures

Units sold

52,400

36,000

152,500

94,000

Net rental patients as of period-end

27,500

31,600

27,500

31,600

Reconciliation of U.S. GAAP to Other Non-GAAP Financial Measures

(unaudited)

(amounts in thousands)

Three months ended

Nine months ended

September 30,

September 30,

Non-GAAP EBITDA and Adjusted EBITDA

2018

2017

2018

2017

Net income

$

16,432

$

7,338

$

41,800

$

21,608

Non-GAAP adjustments:

Interest income

(895

)

(221

)

(2,111

)

(468

)

Provision (benefit) for income taxes

(5,133

)

1,479

(7,168

)

2,254

Depreciation and amortization

2,712

2,936

8,521

9,257

EBITDA (non-GAAP)

13,116

11,532

41,042

32,651

Stock-based compensation

3,216

2,523

9,783

6,630

Adjusted EBITDA (non-GAAP)

$

16,332

$

14,055

$

50,825

$

39,281

Three months ended

Nine months ended

September 30,

September 30,

Non-GAAP net income

2018

2017

2018

2017

Net income

$

16,432

$

7,338

$

41,800

$

21,608

Non-GAAP adjustments:

2017 U.S. tax reform (1)

—

—

—

—

Non-GAAP net income

$

16,432

$

7,338

$

41,800

$

21,608

Three months ended

Nine months ended

September 30,

September 30,

Non-GAAP provision (benefit) for income taxes and effective tax
rate

2018

2017

2018

2017

Income before provision (benefit) for income taxes

$

11,299

$

8,817

$

34,632

$

23,862

Provision (benefit) for income taxes

(5,133

)

1,479

(7,168

)

2,254

Effective tax rate

-45.4

%

16.8

%

-20.7

%

9.4

%

Provision (benefit) for income taxes

$

(5,133

)

$

1,479

$

(7,168

)

$

2,254

Non-GAAP adjustments:

Excess tax benefits from stock-based compensation

8,120

1,739

15,225

6,441

2017 U.S. tax reform (1)

—

—

—

—

Provision for income taxes (non-GAAP)

$

2,987

$

3,218

$

8,057

$

8,695

Income before provision for income taxes

$

11,299

$

8,817

$

34,632

$

23,862

Provision for income taxes (non-GAAP)

2,987

3,218

8,057

8,695

Effective tax rate (non-GAAP)

26.4

%

36.5

%

23.3

%

36.4

%

(1) On December 22, 2017, the Tax Cuts and Jobs Act (TCJA)
was enacted into law, which significantly changes existing U.S. tax law
and includes numerous provisions that affect the Company. During the
fourth quarter of 2017, the Company recorded an estimated one-time net
charge due to the impact of changes in the tax rate, primarily on
deferred tax assets. There were no related charges during the third
quarter or the first nine months of 2018.

Company

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